The two clubs had reached an agreement and Milito had signed a contract for four seasons earlier this month, but the €3.5m move was subject to a medical in Spain. Milito suffered a serious knee injury two years ago and Madrid doctor Alfonso del Corro claimed the tests showed the player "had a risk of being seriously injured again in the future".
An official club statement said: "After the medical tests, our staff considers that, bearing in mind the intensity and high frequency of the efforts required by the club, they cannot guarantee the fitness of the player for the next four seasons."
Loan move suggested
Independiente disagreed with the diagnosis and used their own medical staff along with the national team doctor to vouch for Milito's fitness. As a compromise, the Spanish champions suggested taking the player on loan as a trial but the Argentinian club rejected the proposal.
"We just regret what has happened and wish Milito the best for the future," said Jorge Valdano, Madrid's sporting director, after eight hours of talks. "We signed Milito for his technical ability but we must respect our medical staff's opinion."
With Independiente suggesting they may pursue the matter further, the player's agent Hugo Issa said Milito was "disconsolate" but added: "We will try and find another European club. We have offers from Spain and Italy."
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